UPDATE 1-Australia's Dick Smith beats retail gloom as cost controls boost profit

Tue Aug 19, 2014 12:43am EDT

* FY14 net profit A$42.1 mln Vs A$40 mln forecast

* Electronics retailer's shares rise as much as 11 pct

* Bright spot in sector squeezed by sluggish economy (Adds earnings details, outlook, broker comment)

By Byron Kaye

SYDNEY, Aug 19 (Reuters) - Dick Smith Holdings Ltd, the operator of Australia's biggest chain of electronics stores, on Tuesday said it beat profit forecasts as a clampdown on costs helped it sidestep the soft consumer demand that's plaguing the country's retailers.

Net profit came in at A$42.1 million ($39.3 million) for the fiscal year to June 30, 5.3 percent ahead of a forecast the fast-growing retailer gave when it went public in December 2013.

Dick Smith shares rose as much as 11 percent. Investors homed in on an apparent success story in a retail sector that has been weighed down by consumers tightening their belts amid concerns about Australia's economy and government budget cuts.

At A$1.23 billion, revenue was on a par with forecasts in the Dick Smith initial public offering prospectus, but the company shaved 1 percent off expected operating costs. Results were based on seven months of trading extrapolated over a full year because of the change of in the company's status.

The lower costs came even as the company ramped up a quick-fire store opening programme while also trying to boost online sales. Dick Smith opened 54 new stores in Australia and New Zealand in the fiscal year ended June 30, bringing its total to 377.

For the current financial year, the pace of store openings will slow, with plans to open another 20 outlets. Sales for the first seven weeks of the 2015 financial year have had "low double-digit" percentage growth, leaving Dick Smith "well placed to deliver further strong profit growth in FY15", the company said.

Analysts said the opening share price surge was as much about overall gloom on prospects for retailers in a time of weak consumer spending as about Dick Smith's financial performance. Companies from consumer electronics retailer JB Hi-Fi Ltd to department store operation Myer Holdings Ltd have this year posted earnings that failed to sparkle.

"Retail is really patchy," said James Rosenberg, a private client adviser at Macquarie Bank. "Expectations are fairly modest so any meeting of expectations have been warmly received by the market."

At 0423 GMT Dick Smith shares, which have seldom traded over their A$2.20 issue price since listing, were up 8.8 percent at A$2.17, having traded as high as A$2.22 during the day. The benchmark index was 0.5 percent higher.

The early success of Dick Smith as a listed company comes after Australian private equity firm Anchorage Capital Partners sold down its 98 percent holding in the share listing process little more than a year after buying the business from Woolworths Ltd.

Anchorage now owns 20 percent of the company, and said in a statement it plans to keep its stake based on the earnings and "our positive view of the company's future prospects".

Since being bought by Anchorage, Dick Smith has been opening stores, pushing its private label products, and ramping up its ability to sell online, including enabling stores to fulfill orders made over the internet.

Online sales grew 55 percent and are now more than 4 percent of total sales. The company grew sales of computer hardware and what it calls "mobility" products - notebooks, tablets and cameras - by 50 percent.

(1 US dollar = 1.0707 Australian dollar) (Reporting by Byron Kaye; Editing by Paul Tait and Kenneth Maxwell)